THE YEAR AHEAD IN BULK: Industry Pros Expect Some Improvement

Although 2008 saw the American economy battered by high fuel prices, tight credit, flagging retail sales and high-profile business failures, bulk industry pros seem cautiously optimistic about 2009. In a casually unscientific survey of both operators and suppliers, bulk experts pointed to a number of key indicators that could suggest a better year ahead. Though the industry may not fully recover within the year, they said, it will likely bounce back from its current slump.

But with the nation now officially in a recession of unknown severity, unemployment on the rise and consumer spending dramatically down, these changes won’t take place overnight. The industry that was once called “recession proof” will need time to adapt to many new economic realities. Positive changes, the industry veterans forecast, will most likely occur during the second and third quarters.

Reasons for optimism included the current lower oil prices, new economic policies planned by the incoming administration and a renewed aggressiveness on the part of suppliers to market more innovative products with high perceived values. Together, these forces can stabilize – and in some cases lower – product and overhead costs for the operator, and make it much easier to revitalize the market.

“I think the biggest problem we have now is that everyone is scared,” said Marty Luepker of S&B Candy and Toy Co. “However, I think that fear will wear off in the coming year. The great news is there’s going to be a little easing of overhead with oil. The cost of high-bounce balls in August was double the pricenow. And they’re a good indicator of the effect lower oil prices will have on our industry, beyond just fuel costs.”

According to Luepker and others, the dramatic reduction in the cost of fuel will be reflected in the prices of most petroleum-based products – and as prices come down, operators will have more capital to invest in new merchandise and equipment. This is a key issue in the industry, the experts said, since the high price of fuel for route vehicles has caused many operators to extend the time between service calls as a cost-saving measure, and forced them to dig into warehouses’ long-dormant inventories.

That is to say: Older products, sitting in machines for longer between rotations, have been cost effective – but measurably have not provided a winning sales-boosting strategy for the operator.

And one key element holding the industry back has been operators’ reluctance to invest in new products and equipment. A large part of this, those interviewed say, simply has to do with the uncertainty that exists in the general economy. Daily headlines and newscasts proclaiming the latest victims of the financial crisis, coupled with less-than-crystal-clear regulations regarding product safety requirements, have left many operators wary when purchasing equipment or products.

“I believe there’s been an economic shift and operators are waiting to see what the shake-out will be, and how they’ll maneuver through it,” said Jim Hinton of Oak Manufacturing. “However, I don’t think it’s as gloomy as some people think it is. That doesn’t take away from the fact there is a true downturn, but the industry has been through downturns before and survived.”

Other manufacturers and operators who remember previous recessions share Hinton’s analysis. In the economic downturn following the dot.com bubble burst, for instance, the industry surged. It was then that 50¢ vends began to gain a strong foothold, and a host of new products attracted previously untapped demographics, such as the teen and tween markets.

“If the retail side of the economy continues to shutter stores, we’ll be affected adversely. I’m not saying that’s going to happen, but it could be a trend, unfortunately,” said Michael Fishman of Five Star/T.J. King. “That said, operators who are in secure locations might see an up tick, because bulk vending is still a good value for the money and provides a low price for a desirable item, even at 75¢ or $1.”

Fishman also noted that it’s more important now than ever for operators to focus on marketing and merchandising efforts. “You have to work hard and work smart,” he said. “That includes making sure your setup is as attractive as possible to draw in business.”

“Ultimately, I think 2009 will be a very interesting year. It appears as though the downturn of the economy is going to prompt a resurgence in bulk vending,” said A&A Global’s Phil Brilliant. “We might return to the time when we all thought bulk vending was ‘recession proof.’ Recently, with gas at $4 a gallon and expenses increasing, operating costs were pushing bulk vending to the limit. Now those variables are decreasing, which is going to increase opportunity for the operator.”

Carl Morcate of VenDynamics also predicts a better 2009, though he is cautious in estimating the timeframe for an upturn. “The turnaround will not be too quick. The consumer is still afraid and pinching quarters because nothing affects them more than high gas prices,” he predicted. “I think we’ll see a return to sales of about three years ago unless a supplier has some real standout items. But we will see new creativity as suppliers release what I’ll call ‘technology they have been working on over the last year,’ to regain ground.”

Craig Goodman of Brand Vending Products also sees creativity and new product lines as key to bulk vending’s recovery. “From a product standpoint, I can see more and more innovative, creative products flowing from bulk vending suppliers,” he observed. “I think that’s the real focus – on products that are new, exciting and kidsafe. That’s what will instill confidence in our industry, so I am optimistic.”

New products, the pros said, are essential to raising sales from their current dismal levels. Bulk vending, they point out, does not create a “pent up demand” on the part of the consumer in the same way cellphones, computers and MP3 players do. As an impulse purchase, everything depends on attracting the consumer’s interest as they pass a machine.

And although there will be challenges facing operators and distributors during the coming year, most long-time industry veterans see those challenges as manageable. “In a nutshell, where there is nervous tension in our industry, there lies opportunity to serve the customers with facts over fiction. One fact is that the bulk vending and redemption business will remain a low-cost entertainment option for U.S. consumers during the financial challenges of a recession,” said Tom Hirt, president of TNT Amusements. “Yes, it’s true that our costs are going to push higher in 2009 due to product testing requirements, but we are all playing on the same field. It will continue to be the customers who matter most.”

Even disregarding the somewhat sanguine picture painted by some in the industry, many continue to see opportunity in a less-than robust-economy. Steve Schechner of Capital Vending (Florence, AL) is taking a pragmatic approach, downturn or no downturn. “This is not the time to go into defensive mode. Right now we are having our strongest sales push we’ve ever had,” he said. “We’re not sitting down. We’re not playing defense, and others shouldn’t plan on playing defense in 2009.”

Schechner advised operators to readjust to the easing of fuel prices. For instance, those who extended service calls may want to think about going back to the pre-$4-a-gallon-gas schedules. “I think it’s important for all of us to move forward if we want to stay in business,” he concluded.